Medicare Gaps Leave Many With Big Bill at End of Life, Study Finds

Health care spending in the final 5 years exceeds total household assets for one in four seniors

Please note: This article was published more than one year ago. The facts and conclusions presented may have since changed and may no longer be accurate. And "More information" links may no longer work. Questions about personal health should always be referred to a physician or other health care professional.

As a result, a significant portion of their savings and other assets go to paying their end-of-life costs when they die.

In the last five years of life, out-of-pocket co-payments and deductibles, and the high cost of home care services, assisted living and long-term nursing home care cause 25 percent of seniors to spend more than their total non-housing assets, the study found.

"The biggest problem for many families is covering long-term care," said study author Dr. Amy Kelley, an assistant professor of geriatrics and palliative medicine at the Mount Sinai School of Medicine, in New York City.

Kelley became interested in the issue of cost in the final years of life by working with patients and families who are struggling to make decisions while facing financial challenges. "I see it every day. Individuals facing retirement may not be aware of what Medicare doesn't cover," she said.

The study used 2002-2008 data from the federally funded U.S. Health and Retirement Study, conducted at the University of Michigan over the past two decades.

Kelley and her colleagues found that the average out-of-pocket health care spending by households of Medicare recipients in the last five years of life was nearly $39,000. And 10 percent of recipients spent more than $89,000, while 5 percent of recipients spent more than $139,000.

More than 75 percent of households spent at least $10,000, while 11 percent of single and 9 percent of married households spent more than $100,000.

The amount of spending varied with the person's illness. Those with Alzheimer's disease or dementia spent the most for health care, averaging about $66,000, more than double that of those with cancer or gastrointestinal disease, who spent about $31,000.

In looking at the money spent compared to the percentage of assets, the data do not include the value of an individual's or couple's residence or other owned housing. Those assets could be used to help pay costs either during the last five years or after death, Kelley said.

The statistics used for this study were collected by interviewing family members of 3,209 deceased people about both total out-of-pocket health care expenditures in the last five years of life and baseline household assets. All measurements were adjusted for inflation to 2008 dollars.

The study appeared online Sept. 4 in the Journal of General Internal Medicine.

"The sad news is that it's going to be much more expensive to grow old," said Olivia Mitchell, a professor of insurance and risk management at the Wharton School at the University of Pennsylvania, in Philadelphia.

Mitchell said the study shows why it's difficult to save for those last five years. "Do you focus on the mean or the tails?" she asked. In other words, you don't know whether you'll need to reserve $22,000 or $140,000 to meet the costs of care in the end of life, she said.

"To be 90 percent sure your expenses [at the end of life] will be covered," Mitchell explained, "you would need about $400,000, plus the cost of purchasing Medigap," an insurance policy sold by private insurance companies that supplements Medicare benefits, in an effort to cover the gaps in health care coverage.

The authors said that "uninsured, out-of-pocket expenditures are likely to continue their growth, whether because of growth in health care spending, or a great reliance on co-payments and deductibles to scale back Medicare growth." They predict that as more baby boomers retire, they "could face a sharply diminished financial future as they confront their recently depleted nest egg following the illness and death of a spouse."

The bottom line is that you've got to plan for retirement early, Mitchell said. "Save more. Tighten your belts. If you don't think about retirement until the kids are in college, it's really too late."